Peers Inc: A New Organizational Structure for Interaction & Adaptation

There is a new organizational structure that has changed the way we build businesses, the way we work, and ultimately, the way we shape economies. I call this new organizational structure “Peers Inc.,” and it is reinventing the economy and capitalism. There are three building blocks to this new organizational structure: excess capacity, people, and platforms. These companies are leveraging excess capacity on a platform, and inviting the participation of others.

My favorite example is bed-sharing. The Intercontinental Hotel has been around for 65 years, and has 650,000 rooms in 100 countries. That’s impressive: The Hilton Hotels were not able to build that capacity in 93 years. Airbnb, though, had 650,000 rooms by its fourth year. Just like that: an entire sector disrupted in four years.

Airbnb is now nine years old. It was recently valued at $31 billion. What in the heck is going on? Why is this happening—and how can you participate?

Let’s take a step back: Why did people invent companies and institutions and governments? We invented them to do things that we, as individuals, can’t do. Those are what I would call industrial strengths.

If a project is going to cost millions of dollars? I don’t have that money to spend—I have to invent a company to do that. If it’s going to require lots of kinds of intelligence? I might be brilliant at two things, but I’ll have to bring together a bunch of people who are brilliant at 10 things to get the job done. If it’s going to require standards and standardization? As an individual, I can’t force a standard on anyone—I need something much larger. These industrial strengths are typically bound up in a brand promise, and they’re often global.

On the flip side, there are things that individuals and small, local companies can do much better than big companies. I would call these individual strengths: localization, customization, and specialization. Big companies could do that kind of work, but it’s usually too expensive. The history of industrialization has been all about ripping out the localized, customized, and specialized to build big, standardized things in order to get economies of scale and drive prices down. Industrial and individual strengths are in fact complementary skillsets.

What has changed today is that now, the internet exists. Now, dealing with very small parts carries very low transaction costs. Therefore, we have an opportunity for a brand-new form of collaboration that could never have happened before, and in which we get the best of both worlds: The “inc” builds the platform for participation, and the “peers” deliver the diversity of offerings. It’s a yin-yang, where each side leaves enough on the table for the other side to participate—and it’s all swimming in this sea of excess capacity.

I define excess capacity as something that already exists and has already been paid for, but there’s more unused value there. There are all kinds of examples, and not just physical objects—it could be networks, keystrokes, experiences, or time of day.

Once you’ve identified excess capacity in your life, industry, or company, there are three things you can do with it. First: You can “slice” it. This is what Zipcar did. Buying an entire car, or renting a car for 24 hours, means buying more than you actually use. Instead, Zipcar lets you pay by the hour or the day—only paying for what you actually want to use.

WeWork is another example: Instead of renting an entire office for a long lease period, you pay for the office space you’re going to use. WeWork was founded in 2010 with 110 locations; six years later, they have $1 billion in revenues and are valued at $20 billion. That is slicing a thing that you used to have to buy big.

A second option is to aggregate. That’s what Airbnb did: It took 1 million little spaces around the world and put them together on a platform, where they share one insurance product, communication service, and payment method. That feels fundamentally different than a million individual bed-and-breakfasts around the world.

The third thing you can do with your excess capacity is open it up to new ideas. This, to me, is the most exciting and powerful way to deliver excess capacity. An example of this is open data. McKinsey reports that 40 countries have opened up their data, resulting in one million data sets worth $3 trillion. The governments and transit authorities have already paid for and used this data. Now, by making this platform—standard, open APIs—they’ve created $3 trillion worth of brand-new value that can be extracted.

How could we harness excess capacity in the retail sector? What would it look like to “slice” retail space—renting it by the hour or by the day? Or to “aggregate” retail space? What’s the Airbnb of retail space, enabling owners to rent out space by the hour or by the day? Or could we open up retail space entirely—identifying excess capacity in reception areas, basements, rooftops, and open space, and making it available for others to engage with and come up with new ideas? In short, how can we make flexible and multipurpose spaces, and extract all the value from them?

Let’s return to the “peers” and the “inc.” The “inc” delivers platforms for participation. The platform organizes all the small parts—it makes a complex transaction simple. And importantly, it gives the power of the large entity to the small guys. If you’re lucky, you can get economies of scale and very high growth.

One example of this growth is BlaBlaCar, a true ridesharing company. If you want to go from Paris to Berlin in your own car, and you have three more seats, they will let you sell those seats. BlaBlaCar’s growth curve is very typical for platform companies. They were founded in 2006. It takes a long time to get your platform right; you have to iterate. But once you do get it right, you have the potential for exponential growth. The company now moves four million people every single month—the same as 10,000 high-speed trains or 747s. Yet they have never laid a track or bought a rail car or a plane. They simply harnessed excess capacity on a platform for participation, and invited the participation of others.

The “peers” deliver a diversity of offering. This is why the model beats out every other one: We finally get the value delivered from diversity. That diversity gives us innovation, resilience, and redundancy. My example here is smartphones and apps. The operating system of a smartphone is an incredibly complex thing that costs hundreds of millions of dollars—whereas apps are things that an individual or a small group of people could make themselves.

Since smartphones were invented, we’ve seen about 2 million apps come online. Many are similar, but many are not. Why did we get this profusion of creativity and innovation? Because individuals, in their own lives, sectors, and experiences, imagined things to do with smartphones and APIs. The creativity of all of us made this possible.

The other excess capacity to apps is this: If I bought my smartphone for $1,000, all the other apps are free riders on my investment. It’s a multiplicity of leveraging excess capacity. Every single app on your phone is a Peers Inc. collaboration. You give it your contacts; you give it your GPS; and you give it a free device.

Let’s turn for a moment to a more depressing topic: climate change. If you have been born since 1980, you have never experienced a year that was cooler than the 20th century global average. We’ve already warmed the planet by almost one degree Centigrade, and scientists tell us we will see another five or six degrees by the year 2100 if business continues as usual.

The last time it was 4.5 degrees cooler was 20,000 years ago, during the last Ice Age. Imagine the skylines of North America and Europe under glaciers. My own bed in Boston would be under a kilometer and a half of ice. That’s what 20,000 years and 4.5 degrees look like. We are going forward that amount in 85 years.

A friend of mine likes to say, “You can’t solve exponential problems with linear solutions.” That is what we have been doing. I want to suggest that to address climate change, or any other single big problem, we have to start working with existing assets on a platform for participation. We have to try Peers Inc.

Peers Inc. has such incredible characteristics that I think of it as miraculous. Here’s Miracle No. 1: Because we’re leveraging excess capacity, we can defy the laws of physics. If, in 2000, instead of inventing Zipcar, I had decided to build 650,000 rooms in 100 countries in four years, all the experts would have told me that it was physically impossible. I couldn’t get the land, design it, finance it, build the rooms, put in the furniture, get the staff, get people to come, etc. But Airbnb was able to get that kind of scale by leveraging existing excess capacity on a platform for participation, and invited the collaboration of others.

Miracle No. 2: Because we’re building on platforms, we can tap into exponential learning. Learning is all about the number of iterations you can get in a lifetime. Companies get more iterations, so they can learn faster. Platform companies see lots of transactions—they can learn even faster still.

Miracle No. 3: Because we work with a diversity of peers, the right person will appear. My example here is again Airbnb. In December 2014, President Obama decided to normalize relations with Cuba. Six months later, Airbnb had 2,000 listings in Cuba. It could not have done this any other way.

The thing to remember about Peers Inc. is that it is a collaboration. It requires both parties. We can’t have exponential growth without the platform organizing and unleashing excess capacity, and the peers co-investing. We can’t have exponential learning without the hundreds of thousands of crazy ways people do things, and the platform doing the analysis to find the best practice and make it easy, and the worst practice and make it hard. The right person won’t appear unless the platform is doing this supercomputing to find the needle in the haystack right at the moment that you want it.

The old way to extract the most value out of any resource was industrial capitalism. Companies were defined by very strong barriers around them. What was in the company and of the company was very clear, and we protected the company with patents and copyrights and trademarks and certifications.

Today, because the Internet exists, a new organizational structure is possible. We have entered the collaborative economy, where who owns the asset, whether it’s work time or personal time, and whether it’s commercial use or residential use are all one big, slippery, fuzzy thing.

I’m going to leave you with four principles, and if you, like me, believe that they are true, then you believe that we have left industrial capitalism and moved into the collaborative economy.

No. 1: Shared networked assets deliver more value than closed, proprietary ones. This happens two ways: One, the asset is used more efficiently, and two, branded value is extracted.

No. 2: More networked minds are better than fewer proprietary minds. More networked minds are smarter, more local, more creative—more of whatever you want—than only the minds inside your company, city, state, or country. It’s just the facts: Statistically, there are more smart people outside of this room than in it. And because the internet exists, I can find them.

No. 3: The benefits and opportunities of shared open assets are larger than the problems associated with them. When I was building Zipcar, the people who did not invest were worried about people scratching or damaging the cars. And in fact, this problem did surface; a small percentage of people did do those things. We penalized those people, and when they kept doing the same bad things, we kicked them out. Meanwhile, there were a million other people sharing 13,000 cars around the world.

No. 4: When we participate in these things, we get more than we give. If I make 3 hours of reservations on Zipcar, then I personally have a car in cities around the world. If I edit one Wikipedia article, I personally have access to 5 million entries in the world’s largest encyclopedia. I put in something tiny, and I get something big.

The world we’re in right now is so incredibly dynamic. The pace of technology change is incredible. Climate change is pouring down upon us. What is the future of capitalism? What is the future of work? What I know is that this structure is the structure that enables us to experiment, iterate, evolve, and adapt at the fastest pace. We should all be thinking about how to Peers Inc. our companies.